Renewable Energy and India’s Energy transition: A status check

The panel discussion on ‘Renewable Energy and India’s Energy transition: A status check’, hosted experts working in the renewable energy space in India and globally. Moderated by Brookings India Fellow Rahul Tongia, the panel included Kanika Chawla, senior programme lead at Council on Energy, Environment and Water (CEEW); Tim Buckley, director of energy finance studies, Institute of Energy Economics and Financial Analysis (IEEFA), Australia; and Gagan Sidhu, independent consultant and former CFO at GMR RE Ltd.

Author

Research Assistant - Brookings India

The objective of the discussion was to highlight the challenges that India might face in its ambitious goal to achieve the target of 175 GW of RE, and grow even further. The discussion mainly focused on various challenges in terms of institutional barriers, financing and system level operations.

The panel also discussed the various obstacles for the rooftop solar or distributed RE generation in India. The discussion started with a new framework proposed by Tongia on a ladder of competition between RE (solar and wind) and coal-based electricity, where’s it’s not just simple levelised cost that can be compared, but where issues of location, of time of day, and existing versus new capacity that matter.

The main highlights of the discussion included: –

India’s RE objectives are not driven by the emissions target unlike other developed nations. Instead, these are driven by the domestic factors such as energy needs (energy access to all), energy security (reducing reliance on imports), job creation, simple economics (cheapest source of electricity) and broader pollution concerns (local air pollution in addition to mitigating climate change).

Renewable energy *once built* is always going to be the winner in the RE vs Coal debate as RE based generation has a zero variable cost and is always going to be given priority over a coal-based generation in merit order based despatch. This assumes the grid is set up properly, and there is, for example, sufficient transmission capacity.

With the advancement of technology, RE is now cheaper than a new coal power plant and hence building a new RE-based power plants is favourable but at the same time India should be mindful of the fact that India already has an overcapacity of coal-based power plants (funded heavily by the public sector banks and financial institutions) in the country to an extent that some of these projects have been declared as stressed assets.

One lesson learnt from the current scenario of stranded power assets where some of the thermal power plants do not have a power purchase agreement (PPA) and some with a PPA do not have a fuel supply agreement (FSA), is that the new RE plants should have a stronger PPA in terms of a guaranteed power offtake as RE based plants do not require any input fuel to generate electricity.

With the increasing share of RE, India will sooner rather than later need Time of Day based electricity pricing which will create demand for storage, demand response, and ancillary services, which will become investment opportunities.

The rooftop solar market in India has not grown as much because rooftop projects are often treated the same as a utility-scale projects in terms of financing and due diligence. One of the problems in financing residential rooftop solar is that most borrowers do not have sufficient credit ratings, or even a credit score. The residential rooftop market needs innovative ways of financing. One of the ways discussed by the panel to overcome this was that if the utility acts as an intermediary based on the consumer’s bill repayment history and with a due diligence, which provides a proxy credit score, so it will be easier for the house owner to have access to capital at competitive rates. There could also be a model where the utility partners, for a small fee, with the RE developer, enabling a lower risk RESCO (renewable energy service company) model, where consumer non-payment to the RESCO (who sets up the solar system in return for a stream of payments over time) would allow the utility to, say, switch off electricity supply to the consumer. This enables the utility to partner with rooftop RE, instead of treating it as competition.

[On energy storage & markets] Take energy storage for example, I can't say that policy development and regulation caused prices to go down significantly but I can say without hesitation that policy development and the proper amount of regulation in wholesale markets have removed barriers for the integration of energy storage resources in wholesale markets.